It happened 50 years ago, changed the course of world history – and revealed just how authoritarian conservatives are. Andy Beckett in The Guardian
Fifty years on, the 1973 coup in Chile still haunts politics there and far beyond. As we approach its anniversary, on 11 September, the violent overthrow of the elected socialist government of Salvador Allende and its replacement by the brutal dictatorship of General Augusto Pinochet are already being marked in Britain, through a period of remembrance scheduled to include dozens of separate exhibitions and events. Among these will be a march in Sheffield, archival displays in Edinburgh, a concert in Swansea, and a conference and picket of the Chilean embassy in London.
Few past events in faraway countries receive this level of attention. Military takeovers were not unusual in South America during the cold war. And Chile has been a relatively stable democracy since the Pinochet dictatorship ended, 33 years ago. So why does the 1973 coup still resonate?
In the UK, one answer is that roughly 2,500 Chilean refugees fled here after the coup, despite an unwelcoming Conservative government. “It is intended to keep the number of refugees to a very small number and, if our criteria are not fully met, we may accept none of them,” said a Foreign Office memo not released until three decades afterwards.
The Chileans came regardless, partly because leftwing activists, trade unionists and politicians including Tony Benn and Jeremy Corbyn created a solidarity movement – of a scale and duration harder to imagine in our more politically impatient times – which helped the refugees build new lives, and campaigned with them for years against the Pinochet regime. Some of these exiles settled in Britain permanently; veterans of the solidarity movement are involved in this year’s remembrance events, as they have been in earlier anniversaries. The left’s reverence for old struggles can sometimes distract it or weigh it down, but it is also a source of emotional and cultural strength, and an acknowledgment that the past and present are often more linked than we realise.
Two weeks ago, it was revealed that an old army helicopter that stands in a wood in Sussex as part of a paintball course had previously been used by the Pinochet government, to transport dissidents and then throw them into the sea. The dictatorship was a pioneer of this and other methods of “disappearing” its enemies and perceived enemies, believing that lethal abductions would frighten the population into obedience more effectively than conventional state murders.
Not unconnectedly, the regime also pioneered the harsh free-market policies which transformed much of the world – and which are still supported by most Tories, many rightwing politicians in other countries, and many business interests. In Chile, the idea that a deregulated economy required a highly disciplined citizenry, to avoid the economic semi-anarchy spilling over into society, was exhaustively tested and refined, to the great interest of foreign politicians such as Margaret Thatcher.
Augusto Pinochet, left, and President Salvador Allende attend a ceremony naming Pinochet as commander in chief of the army, 23 August, 1973. Photograph: Enrique Aracena/AP
Another reason that the 1973 coup remains a powerful event is that it left unfinished business at the other end of the political spectrum. The Allende government was an argumentative and ambitious coalition which, almost uniquely, attempted to create a socialist country with plentiful consumer pleasures and modern technology, including a kind of early internet called Project Cybersyn, without Soviet-style repression. For a while, even the Daily Mail was impressed: “An astonishing experiment is taking place,” it reported on the first anniversary of his election. “If it survives, the implications will be immense for other countries.”
The coup happened partly because the government’s popularity, though never overwhelming, rose while it was in office. This rise convinced conservative interests that it would be reelected, and would then take the patchy reforms of its first term much further. For the same reasons, the Allende presidency remains tantalising for some on the left. An updated version of his combination of social liberalism, egalitarianism and mass political participation may still have the potential to transform the left’s prospects, as Corbyn’s successful campaigns in 2015, 2016 and 2017 suggested.
Files reveal Nixon role in plot to block Allende from Chilean presidency
There is one more, bleaker reason to reflect on the coup: for what it revealed about conservatism. When I wrote a book on Chile two decades ago, it was unsettling to learn about how the US Republicans undermined Allende, by covert CIA funding of his enemies, for instance, and how the Conservatives helped Pinochet, through arms sales and diplomatic support. But these moves seemed to be explained largely by cold-war strategies and free-market zealotry, which was fading in the early 21st century.
Yet from today’s perspective, with another Trump presidency threatening, far-right parties in power across Europe, and a Tory government with few, if any, inhibitions about criminalising dissent, the Chile coup looks prophetic. Nowadays the line between conservatism and authoritarianism is not so much blurred occasionally, in national emergencies, as nonexistent in many countries.
Some critics of conservatism would say that it’s naive to think such a line ever existed. In 1930s Europe, for instance, supposedly moderate and pro-democratic rightwing parties often facilitated the rise of fascism. Yet the postwar world, after fascism had been militarily defeated, was meant to be one where such toxic alliances against the left never happened again.
The 1973 coup ended that comfortable assumption. “It is not for us to pass judgment on Chile’s internal affairs,” said the Tory Foreign Office minister Julian Amery in the Commons, two months later, despite the coup having initiated killings and torture on a mass scale. When the coup is remembered, its victims should come first. But the response of conservatives around the world to the crushing of Chile’s democracy and civil liberties should never be forgotten.
Foreign capital flees poorer countries at the first sign of instability. The pandemic and Ukraine war ensure there is plenty of that around writes Jayati Ghosh in The Guardian
This January, even before Sanjana Mudalige’s salary as a sales worker in a shopping mall in Colombo, Sri Lanka, was slashed in half, she had pawned her gold jewellery to try to make ends meet. Ultimately, she quit her job, because the travel costs alone exceeded the pay. Since then, she has shifted from using gas for cooking to chopping firewood, and eats just a quarter of what she did before. Her story, reported in the Washington Post, is one of many in Sri Lanka, where people are watching their children go hungry and their elderly relations suffer for lack of medicines.
The human costs of the crisis only really captured international attention when the massive popular upsurge earlier this month, known as Aragalaya (Sinhalese for “struggle”), led to the peaceful overthrow of President Gotabaya Rajapaksa. His family had ruled Sri Lanka with an iron fist, albeit with electoral legitimacy, for more than 15 years, and is now being blamed by both national and international media for the desperate economic mess the country is in.
But blaming the Rajapaksas alone is too simple. Certainly, the aggressive majoritarianism that they unleashed, along with the alleged corruption and major economic policy disasters of recent years (such as drastic tax cuts and bans on fertiliser imports), were crucial elements of the economic debacle. But this is only part of the story. The deeper and underlying causes of the crisis in Sri Lanka are barely mentioned by most mainstream commentators, perhaps because they reveal uncomfortable truths about the way the global economy works.
This is not a crisis created by a few recent external and internal factors, it has been decades in the making. Ever since its “open economic policy” was adopted in the late 1970s, Sri Lanka has been Asia’s poster boy for neoliberal reform, much like Chile in Latin America. The strategy was the now-familiar one of making exports the basis for economic growth, supported by foreign capital inflows. This led to a significant increase in foreign currency debt, something the IMF and the Davos crowd actively encouraged.
In the period after the 2008 global financial crisis, as low interest rates in advanced economies led to the availability of cheap credit, the Sri Lankan government relied on international sovereign bonds to finance its own spending. Between 2012 and 2020, the debt to GDP ratio doubled to around 80%, with a growing share of this in bonds. The payments due on these debts kept rising in relation to what Sri Lanka could earn from exports and the money sent back home by Sri Lankans working abroad. The disruptions caused by the pandemic and the war in Ukraine made matters much worse, by causing export earnings to fall and sharply increasing the price of essential imports including food and fuel. Foreign exchange reserves plummeted – but the government had to keep paying interest even when it could not import essential fuel.
Looked at in this light, it is clear that Sri Lanka is not alone; if anything, it’s just a harbinger of a coming storm of debt distress in what economists call the “emerging markets”. The past period of incredibly low interest rates in the advanced economies meant that more funds flowed to “emerging” and “frontier” markets from the richer world. While this found cheerleaders in the international financial institutions (IFIs), it was always a problematic process. This is because, unlike in places such as the EU and US, capital leaves low- and middle-income countries (LMICs) at the first sign of any problem.
And these countries were much more battered economically by the pandemic. Advanced economies were able to provide massive countercyclical measures – think of the UK’s furlough programme – because financial markets effectively allowed and even encouraged them to do so. By contrast, LMICs were prevented from increasing fiscal spending by much – because of those same financial markets, which threatened the possibility of credit downgrades and capital flight as government deficits grew larger. Plus they faced significant declines in export and tourism revenues and tighter balance of payments constraints. As a result, their economic recovery has been much more muted and economic conditions remain mostly dire.
The half-hearted attempts at debt relief, such as the moratorium on debt servicing in the first part of the pandemic, only postponed the problem. There has been no meaningful debt restructuring at all. The IMF bewails the situation and does almost nothing, and both it and World Bank add to the problem through their own rigid insistence on repayments and the appalling system of surcharges imposed by the IMF. The G7 and “international community” have been missing in action, which is deeply irresponsible given the scale of the problem and their role in creating it.
The sad truth is that “investor sentiment” moves against poorer economies regardless of the real economic conditions in specific countries. Private credit rating agencies amplify the problem. This means that contagion is all too likely, and it will affect not just economies that are already experiencing difficulties, but a much wider range of LMICs that will face real difficulties in servicing their debts. Lebanon, Suriname and Zambia are already in formal default; Belarus is on the brink; and Egypt, Ghana and Tunisia are in severe debt distress.
Many countries with lower per-capita income and significant absolute poverty are facing stagflation. Billions of people are increasingly unable to afford a basic nutritious diet, and cannot meet basic health expenses. Material insecurity and social tensions are inevitable.
The situation can still be resolved, but it requires urgent action, especially on the part of the IFIs and G7. Speedy and systematic debt resolution actions to bring in private creditors and other creditors, such as China, are needed, as is IFIs doing their own bit to provide debt relief and ending punitive measures such as surcharges. In addition, policies to limit speculation in commodity markets and profiteering by big food and fuel companies must be put in place. Finally, the recycling of special drawing rights (SDRs) – essentially “IMF coupons” – by countries that will not use them to countries that desperately need them is vital, as is another release of SDRs equating to about $650bn to provide immediate relief.
Without these minimal measures, the post-Covid, post-Ukraine global economy is likely to be engulfed in a dystopia of debt defaults, increasing poverty and sociopolitical instability.
When the economy collapsed in 2008, I had to think ahead. I fear too little thought has been given to our recovery after Coronavirus writes Gordon Brown
‘Our young people now face the worst labour market for 50 years.’ Photograph: Hollie Adams/Getty Images
Our country’s Covid-19 crisis, together with the economic crisis the pandemic brought with it, is not over. In fact, it is entering a dangerous new phase.
With the UK economy collapsing by 25% in March and April – a fall twice as bad as those in Europe and the US and now only halfway back to pre-crisis level – a recovery plan is needed: closer to France’s £90bn, Germany’s £115bn and the US’s £1tn is required, not the £30bn announced by the chancellor in July.
Millions of people – not 200,000 as now – must be tested every day if the mass return to the workplace is not to result in a second wave of the disease.
And, if the end of the furlough scheme on 31 October is not to bring the highest number of redundancies in living memory, new job-protection measures – based on the Office for Budget Responsibility’s assessment that unemployment could reach 3m – will have to be implemented in the next few days.
Already I see the Conservative economic doves of the spring reverting to type, emerging as the grasping fiscal hawks of autumn, unable to see that every economic orthodoxy has been turned on its head.
Having led the country through one big crisis after 2008 – I had to learn quickly, and learn from my own mistakes – I can feel some sympathy for Boris Johnson, even though mea culpa is the one Latin phrase that will never cross his lips. But I found back then that it was not enough just to do day-to-day crisis management, or even to be one step ahead of events; the real challenge is to anticipate the next problem but one.
More than that, to solve each problem I had to get to the root of it, often by overriding conventional thinking, and following that up with a relentless determination to mobilise all the weapons at one’s disposal. In 2008 the banks were running capitalism without capital, so we nationalised strategically important financial institutions.
Now, in 2020 and still in the absence of a vaccine or a cure, we should have been clear from the outset that regular mass testing was – and still is – the effective way to detect the spread of the disease and then to respond with prompt local public health interventions.
But I fear that those responsible – having misspent millions on contracts for serially ineffective initiatives – have given too little thought to what also matters in the days ahead: engineering the long-term recovery.
Investing now – to save good companies and prevent the destruction of capacity and the loss of key jobs and skills for good – means following Germany and France by maintaining furlough payments in key sectors, preferably with a wage subsidy for part-time work, and with the backstop offer of retraining during absence from the workplace.
And, where workers have to stay at home to avoid the spread of infections during the inevitable increase of pandemic-related local lockdowns, the support available to them has to feed their families, which today’s miserly £90 a week does not.
Our young people now face the worst labour market for 50 years – yet today’s youth employment programme will assist only 350,000, and only for six months, when there are 3.5 million under-25s who are not in full-time education. So to guarantee a job, training or education requires a far more rapid expansion of new apprenticeship, college and university places, along with the re-introduction of the more generous future jobs programme that we had in 2009.
Tory austerity was never a good idea and is now an admitted failure. But it is frankly an economic absurdity when government borrowing costs are so small – 10-year gilt yields are around one-20th of those of 2008 – and unmet needs so extensive.
Indeed inflation – once seen as the justification for austerity economics – is so low in the US today that the Federal Reserve has deemed that maximising employment will now be its main priority. Again, the UK is behind the curve. In 1998, serving as chancellor, I was responsible for the Bank of England Act, which required the Bank to pursue high levels of employment. Now I am the first to say that the Bank needs a more demanding constitution, one that imposes a dual mandate: to take unemployment as seriously as inflation. This should be matched by an operational target stating that interest rates will not rise or stimulus end until unemployment falls to pre-crisis levels.
The current crisis is of course global as much as it is domestic. From 2008 to 2010, I spent much of my time persuading my fellow leaders to act as one, and to agree a synchronised stimulus alongside aid for developing countries. But I am shocked that now – with the world’s economies simultaneously damaged by the pandemic and an economic shock far worse than back then – the world’s leaders have done so little work together in response.
In short, all countries should be agreeing to call time on 50 years of neoliberal economics. They should break not only with their exclusive focus on controlling inflation, but with the pursuit of deregulation, liberalisation and privatisation at the expense of fairness, employment and sustainability. That project, once called the Washington consensus, is out of favour even in Washington. A new paradigm would give priority to fair trade, not just free trade; better control of the management of destabilising capital flows to replace the current free-for-all; a competition regime that can robustly address monopolistic behaviour from rent-seeking digital platforms; an industrial policy that would include generous support for science and innovation – with all that wrapped in a commitment to action on climate change and action on unacceptable levels of inequality.
Could it happen here? I believe so. While the government may feel able to steamroller its policies through the House of Commons thanks to an 80-seat majority, our multinational and increasingly regionally diverse country can no longer be straitjacketed, as now, by a remote and failing centralised state.
In contrast to the tiny and fallible cabal in No 10, democracy is rising again elsewhere: no longer just MPs and local councillors, but directly elected metro mayors and elected decision-making bodies in Scotland, Wales and Northern Ireland. And, as with the outrage against the government’s breach of international law, a rebellion of the regions and nations could force the prime minister to listen.
A challenge no doubt, especially with this prime minister. But he is already worried about the fragility of his recently acquired strength in the north of England; and as a unionist, he knows he must also take heed of voices in Scotland and Wales, where his popularity is waning fast. Politically – and despite his formidable record in the genre – he knows he cannot afford a U-turn on the union.
A strong alliance encompassing trades unions and businesses too can thus not only press for a recovery plan but also revive the spirit of cooperation and unity across our country – and, through a newfound solidarity, give the British people what we need most: hope.
China may be currently unpopular with the rest of the world; but, like the Soviets before them, they claim to have lifted large numbers of people out of poverty writes Yuan Yang and Nian Liu in The FT
Two A3-sized cards hanging outside the door of Jike Shibu’s house in Atule’er, a village perched on a cliff in the mountains of south-west China, were enough to determine his family’s fate. One was white and divided into four sections: “Having a good house; living a good life; cultivating good habits; creating a good atmosphere.” Each section was scored out of 100, with Jike’s family gaining just 65 points on the issue of housing.
Next to the white card was a red one, granting them the title of “poverty-stricken household with a card and record”. On it, an official’s handwritten recommendations for how the family could improve their lot. Their “main cause of poverty” was diagnosed as “bad transport infrastructure and lack of money”. Recommended measures included growing higher-profit crops, such as Sichuanese peppercorn, and “changing their customs”.
By themselves, the cards are not much use to the villagers: very few of those born before the 2000s read Chinese characters fluently. But the writing on them has changed their futures — in Jike’s case, resettling his family in a purpose-built, bustling compound in the nearby market town of Zhaojue.
Zhaojue is a place in a hurry. The government has set a deadline of the end of this month to end extreme poverty in the surrounding county of Liangshan, one of the most deprived in China. “Win the tough battle to end poverty,” proclaims the central hotel on a red electronic marquee — along with the number of days to the deadline. On the narrow streets outside, farmers rush around with wicker baskets full of produce, and vendors sell shoes and clothes piled high on plastic sheets.
The roots of this frantic activity go back to 2013, when leader Xi Jinping set a deadline for all of China’s rural counties to eradicate extreme poverty by the end of 2020. In the four decades since market reform began, China has already made huge advances in this area, winning praise from the UN, World Bank and figures from Bill Gates to Bernie Sanders, for raising 850 million people out of extreme poverty.
For both Xi and the Chinese Communist party, poverty-alleviation goals are more than a policy target. They are also a major source of legitimacy, both inside China and globally. “In my opinion, western politicians act for the next election. [By contrast] China has a ruling party that wants to achieve big goals,” says Hu Angang, a government adviser and head of China Studies at Tsinghua university. “In the history of human development, China achieving this is, if not unique, then at least something worthy of admiration.”
In the five years of Xi’s first term, an average of 13 million people were lifted out of poverty each year, according to the government. Some 775,000 officials were sent to villages to lead poverty alleviation and the government fund for this purpose increased by more than 20 per cent annually since 2013. State media said in March that central coffers had already handed out Rmb139.6bn (£15.8bn) of an estimated Rmb146bn this year. But the Covid-19 epidemic has led to an economic downturn, with the country’s GDP for the first quarter shrinking for the first time in four decades. Areas that were already deprived have been some of the hardest hit.
By the end of 2019, there were still 5.5 million individuals in extreme rural poverty around China. Xi’s goal is to bring this figure to zero in time for the centenary of the Communist party in July 2021. Coinciding with this would allow him to declare that China is prosperous and deserves to be a world leader, says Gao Qin, an expert on China’s social welfare at Columbia University. “The government is determined to achieve this goal,” says Gao. “Since March, official publications have reaffirmed that it must happen by the end of the year.”
In a bid to do this, the fronts for Xi’s “tough battle” on poverty are shifting. “Some villages are in extreme poverty that is difficult to alleviate, because of natural conditions and of the lack of transport infrastructure. In these places, very few villagers can become migrant workers and they rely on subsistence agriculture,” says Wang Xiangyang, assistant professor of public affairs at Southwest Jiaotong University. These include remote mountain communities such as the one in which Jike lives.
Atule’er — or Cliff Village as it is now widely known in China — sits atop a 1,400m mountain. Like many of the Yi ethnic minority areas of Liangshan, it is infrequently visited by tourists and difficult to reach, and may well have stayed that way had it not come to national prominence in 2016. That year, a local media feature showed children clinging to an old, crumbling vine ladder on their two-hour descent to the nearest school. Soon, more journalists arrived, and the local government pledged a new 800m steel ladder.
“Liangshan became the forefront of poverty alleviation — a lab within the country,” says Jan Karlach, research fellow at the Czech Academy of Sciences, whose research has focused on Liangshan and the Nuosu-Yi for the past 10 years. In 2017, at the annual meeting of China’s parliament, Xi dropped by the Sichuan province delegation to ask about progress alleviating poverty among the Yi people. “When I saw a report about the Liangshan cliff village on television . . . I felt anxious,” he said.
Over the past few months, the local government has resettled 84 households, or half the village, in Zhaojue, giving them apartments at the heavily subsidised price of Rmb10,000 (£1,130) per apartment. The “resettlement homes” are located a two-hour drive away from the base of Atule’er’s mountain, with a red banner across the entrance welcoming new residents.
The villagers allocated these flats are happy to have them. On the mountaintop, their earthen houses are exposed to the rain, as well as fatal rock slides. There, the only industry is subsistence farming. There is no medical care or formal education.
While some Yi academics question the changing of local (non-Han Chinese) customs for those moved from Cliff Village, the Communist party’s efforts have been largely welcomed. “Even my traditionalist friend — who said he couldn’t live in a house without a Yi fireplace — ditched the idea within a year,” says Karlach. His friend now lives in a town apartment with a picture of Xi on the wall: a poster handed out by local officials to remind poor households who to thank.
But others are not yet sure how to adapt to life in the town, where they will have to transform their mountain-dwelling culture to fit the 100 sq m apartments. “My mother isn’t keen to come down from the mountaintop,” says the 24-year-old Jike. “Elderly people don’t like the town, they say there’s no land and nothing to eat there. I say, ‘What others eat, you’ll eat.’ The elderly can’t stay up there on their own.”
Recently, Jike has been carrying heavy loads of bedding and clothes on his trips down the mountain, getting ready for his move. He has also acquired a following on social media. Hopping between slippery footholds, his giant plastic pack on his back, he holds his smartphone out on a selfie stick and chats cheerfully to fans on Douyin, China’s domestic version of TikTok. Jike can earn Rmb3,000 per month from live-streaming: a fortune compared with the Rmb700 average for rural locals.
He has agreed to take us up to his village in part because he believes the residents who remain there need a better platform to air their views. In some regions, China’s strategy of development through urbanisation has led to forced demolitions, and farmers stripped of the land their families had tended for generations. But Cliff Village faces the opposite problem: there are many more people who want to move than the government has relocated.
Over the two days that we spend there, more people approach us, wanting to show us the insides of their houses and tell us how the local government has overlooked them. In Zhaojue, the threshold for being extremely poor is living on less than Rmb4,200 per year (£475) and, in Cliff Village, such officially “poverty-stricken” households receive a basic income guarantee, the right to buy cut-price new apartments — and even 30 chickens.
But there are also those unlucky enough to be officially logged as poor, either through neglect, miscalculation or mere bureaucracy. They do not receive the same benefits, although they are entitled to some payments, such as the minimum livelihood guarantee. They also do not count towards the government’s poverty-eradication target. In some cases, the government has solved meeting its poverty targets administratively: certain areas have stopped logging residents as “impoverished” since the start of the year. “It’s all been counted, the system no longer takes new impoverished households,” says Azi Aniu, a local county-level party secretary. (He later vacillated on this point, telling us that they were able to log new impoverished households but chose not to.)
While the rapid rate of alleviation is real, the true level of poverty may be impossible to gauge in a system not designed to admit mistakes. According to official policy, if the minimum-livelihood guarantee was being implemented properly, such impoverished households would not exist. The current database will be overhauled for the next step of China’s development plan, which will move on to “precarious” or “borderline” households.
According to Li Shi, professor of economics at Beijing Normal University, surveys from 2014 suggested some 60 per cent of those who should qualify for “poverty-stricken” status based on their low incomes did not get the designation. In the years that followed, “some adjustments were made, and there should be some improvement,” Li wrote.
But many of those still in Atule’er feel left behind. “You’re not going to write one of those ‘Goodbye to Cliff Village’ articles, are you?” asks Jike Quri, a man who had waited all day at the top of the steel ladder for us to arrive. “There is no goodbye: half of us are still here.”
Within an hour of us checking in, local authorities arrived at our hotel door, indicating the sensitivities around this story. State media had come the week before to report on one of the most high-profile battlegrounds in China’s anti-poverty push, and had written stories about happy villagers moving into their flats.
In one local media spread, the family of Mou’se Xiongti, a 25-year-old man, were photographed in their new flat, the bed decked with blankets. When we visited Mou’se’s flat, it was empty except for the government-provided furniture: a set of cabinets, sofa, chairs, tables and bed. Many items were stamped with “People’s Government of Sichuan Provincial Committee of the Communist Party of China”.
The nervousness of local politicians is largely due to the fact that Cliff Village is now renowned for its role as part of a high-level target: Xi has personally embraced poverty alleviation, boosting his populist image as a “peasant emperor” with sympathies for ordinary Chinese people — a persona not dissimilar to that cultivated by Mao Zedong. State propaganda often depicts Xi chatting with farmers about the harvest, sitting cross-legged in village homes or laughing with pensioners. In his first five-year presidential term from 2012, he visited 180 poor regions across 20 provinces. He visited Liangshan in 2018.
The red and white cards that ultimately gave Jike Shibu’s family a flat are part of a policy which required creating a database of households and checking their progress. This campaign came with a boost in government funding for rural social welfare projects, a powerful committee to guide policy and the establishment of a national database of poor households. By the end of this year, that system must be cleared of households like Jike’s.
But the villagers still left in Atule’er say they have not received such targeted attention from the local officials, who, they allege, don’t bother to visit their mountaintop homes that often. (The local official Azi counters that he has trekked up the mountain so many times he has damaged his legs.) As a result, they complain there is no meaningful distinction between “poverty-stricken” households and others, and those in need of help are not getting it.
Some households face the problem of getting lumped together into one record. This happens when adults with their own children are still marked on the record of their parents, meaning they are only assigned one house. Often, officials reject their requests to register new households.
Others suffer Kafkaesque bureaucratic processes. Jizu Wuluo, a 37-year-old widow and mother to four children, two of whom she had to give up for adoption, is determined to give her youngest a good education and rents a flat near the school at the bottom of the cliff. Jizu ticks many of the boxes of an “impoverished” household: she lives in one of the fragile houses on Cliff Village, heads a single-earner family and also “suffers hardship for education”.
However, although she has tried to get “impoverished” status on several occasions, each time officials told her to wait. In October last year she and her two sons were finally each given a minimum livelihood guarantee of Rmb2,940 per year, part of the government’s package of anti-poverty measures that it uses when all else fails. About 43 million people receive it nationwide. In Zhaojue county, the maximum paid per rural recipient per year is Rmb4,200.
“I know Xi Jinping said to help those poor and suffering ordinary folk, but when it comes to grassroots officials like you, you only help those people who already have standing in society,” she says in a meeting with Azi, who listened patiently to a string of complaints.
After we left, Azi quickly followed up on Jizu’s case. The explanation for why she had not been prioritised for an apartment raised more questions than it answered. Jizu had been missed out of the first survey of impoverished households in 2013. Later, she was recorded as “an impoverished household without an official record”. Azi says they could not create an official “impoverished household” record for her after her husband died in 2018. Instead, they added more labels to her case. Azi couldn’t say when the list of impoverished households stopped being amended but, he says, Jizu will be moved into town by the end of the year.
“The relocation apartments are beautiful, they are better than other properties in town, so some villagers get a bit jealous,” says Azi. “I’m being very straightforward with you.”
Moving into town may be one step towards ensuring a secure livelihood, but the most important is finding work. Local officials encourage the younger generation to seek jobs in cities, particularly those along the industrialised south-east coast. For decades, rural-urban migration has been the standard way of improving livelihoods: some 236 million people in China are migrant workers, according to government statistics.
Of the locals we spoke to in their late teens and twenties, many had gone out to work for a few months at a time. Most did unskilled labour in construction and went in groups arranged by friends or relatives. Like migrants from around China, Liangshan’s workers live as second-class citizens when they arrive in major cities, where it is almost impossible to access healthcare or education for their children. During the coronavirus epidemic, these workers — who often had to continue delivering groceries and cleaning hospitals — were highly vulnerable.
The work that Liangshan locals can do is also limited by their education. Most of our interviewees were semi-literate at best, and some did not speak Mandarin. The internet is changing that. Social media, ecommerce and live-streaming have created greater opportunity for reading and writing outside of the world of formal education. Jike, who received just two years of schooling, says he learnt a lot about reading, writing and speaking Chinese from live-streaming. Every now and then, as viewers’ comments flash in real time across his screen, he addresses the commenter by saying, “Sister, I can’t read that.”
Education is another way of leaving the village. While some families prefer to let their children work, others are keen to send them to school. Mou’se Lazuo, the 17-year-old sister of Xiongti, hopes to break the trend in her village by going to university. She is the oldest girl in Cliff Village still at school; the older ones have gone to work or got married. She is one of 72 students in her class.
While she speaks Yi at home, Mou’se studies in Mandarin, with the exception of an hour and a half of Yi language classes per week. “I think it’s fine for Han culture to come here, so long as Han culture and Yi exist side by side,” she says. “We can’t leave parts of our traditional culture, like our legends and our language.”
The Yi didn’t come to China: China came to the Yi. Yi people have lived in the mountains of Liangshan for centuries, not far from Sichuan’s borders with Tibet and Myanmar. After teetering on the edge of the Chinese empire for over a millennium, Liangshan was brought under Communist rule in 1957 with the help of the People’s Liberation Army. The Yi were categorised as such by anthropologists sent by the Beijing-based national government in the 1950s, who determined the roster of 55 officially recognised ethnic minorities.
“It’s a civilising project,” says Karlach, the researcher who has lived in Liangshan, describing the government’s attitude towards poverty alleviation with ethnic minorities. “In Liangshan, in many places, they’re not offered to indigenise or develop their own modernity: they are given the modernity from the outside. They want to be Chinese and are proud to be Chinese, but also want to be Yi.”
For the government, teaching the Mandarin language and Han customs not only makes ethnic minorities easier to govern, but also helps them fit into a Han-dominated economy. Also, rapid urbanisation has changed all traditional cultures in China, subsuming them into the monoculture of the city and of earning money.
In Zhaojue, most shops employ at least some locals, although the newer ones are largely run by Han Chinese migrants from richer parts of China. “Generally, local workers don’t stay for long,” says Mao Dongtian, an entrepreneur from the coastal city of Wenzhou. He has opened a local chain of cafés and karaoke bars. His staff earn between Rmb1,000 and Rmb3,000 — a decent amount for the area — but don’t like the discipline and loss of freedom that come with a full-time job, he says.
“Their ways are more backwards than the Han people, and we are trying to teach them our ways,” continues Mao, describing how he encouraged his staff to seek medical help for ailments rather than rely on folk treatments. Such beliefs are typical of the majority ethnic group’s attitudes towards China’s minorities. Though some of these attitudes are rooted in stereotypes, others reflect a way of life shaped by subsistence agriculture.
When I ask Jike what he will most miss about Cliff Village, he says “the view”. He plans to make the trip up now and again to enjoy it. After sunset, there are innumerable stars and the night is black and quiet. Zhaojue, on the other hand, is lit with streetlamps and has the bustle of people and cars.
After June 30, the government will move on to the next stage of China’s development plan: “the strategy to revitalise villages”. Although China’s development plans have focused on the rural poor, the urban poor are of increasing concern. They are more likely to slip between the bureaucratic cracks, as they are often not registered in the places where they live and work. Cities are loath to accept such migrants: two years ago, Beijing “cleaned out” residents referred to by politicians as the “low-end population”. Some economists estimate that about 50 million migrant workers became unemployed at the start of the epidemic.
This month, Premier Li Keqiang sparked a public outcry over Xi’s claims of success on poverty alleviation, after announcing that the bottom two-fifths of the population made on average an income of less than Rmb1,000 a month. Those 600 million people constitute a significant proportion of city dwellers as well as the rural poor.
“Somehow or other, this [poverty] target will be declared to have been achieved and will form a part of the big celebrations next year. And then the goalposts will shift, I suspect towards issues of equality and equity,” said Kerry Brown, a scholar of Chinese politics at King’s College London. “That’s really where the key battleground will be, because inequality in China is a serious problem and it’s not getting better.”
The separation of monetary and fiscal policy serves the neoliberal status quo. It won’t survive the next crash writes Larry Elliott in The Guardian
‘The Federal Reserve is coming under enormous pressure from Donald Trump to cut interest rates.’ Donald Trump with Jerome Powell, then his nominee for chairman of the Federal Reserve, Washington DC, November 2017. Photograph: Carlos BarrÃa/Reuters
Independent central banks were once all the rage. Taking decisions over interest rates and handing them to technocrats was seen as a sensible way of preventing politicians from trying to buy votes with cheap money. They couldn’t be trusted to keep inflation under control, but central banks could.
And when the global economy came crashing down in the autumn of 2008, it was central banks that prevented another Great Depression. Interest rates were slashed and the electronic money taps were turned on with quantitative easing (QE). That, at least, is the way central banks tell the story.
An alternative narrative goes like this. Collectively, central banks failed to stop the biggest asset-price bubble in history from developing during the early 2000s. Instead of taking action to prevent a ruinous buildup of debt, they congratulated themselves on keeping inflation low.
Even when the storm broke, some institutions – most notably the European Central Bank (ECB) – were slow to act. And while the monetary stimulus provided by record-low interest rates and QE did arrest the slide into depression, the recovery was slow and patchy. The price of houses and shares soared, but wages flatlined.
A decade on from the 2008 crash, another financial crisis is brewing. The US central bank – the Federal Reserve – is coming under huge pressure from Donald Trump to cut interest rates and restart QE. The poor state of the German economy and the threat of deflation means that on Thursday the ECB will cut the already negative interest rate for bank deposits and announce the resumption of its QE programme.
But central banks are almost out of ammo. If cutting interest rates to zero or just above was insufficient to bring about the sort of sustained recovery seen after previous recessions, then it is not obvious why a couple of quarter-point cuts will make much difference now. Likewise, expecting a bit more QE to do anything other than give a fillip to shares on Wall Street and the City is the triumph of hope over experience.
There were alternatives to the response to the 2008 crisis. Governments could have changed the mix, placing more emphasis on fiscal measures – tax cuts and spending increases – than on monetary stimulus, and then seeking to make the two arms of policy work together. They could have taken advantage of low interest rates to borrow more for the public spending programmes that would have created jobs and demand in their economies. Finance ministries could have ensured that QE contributed to the long-term good of the economy – the environment, for example – if they had issued bonds and instructed central banks to buy them.
This sort of approach does, though, involve breaking one of the big taboos of the modern age: the belief that monetary and fiscal policy should be kept separate and that central banks should be allowed to operate free from political interference.
The consensus blossomed during the good times of the late 1990s and early 2000s, and survived the financial crisis of 2008 . But challenges from both the left and right, especially in the US, suggest that it won’t survive the next one. Trump says the Fed has damaged the economy by pushing up interest rates too quickly. Bernie Sanders says the US central bank has been captured by Wall Street. Both arguments are correct. It is a good thing that central bank independence is finally coming under scrutiny.
For a start, it has become clear that the notion of depoliticised central bankers is a myth. When he was governor of the Bank of England, Mervyn King lectured the government about the need for austerity while jealously guarding the right to set interest rates free from any political interference. Likewise, rarely does Mario Draghi, the outgoing president of the ECB, hold a press conference without urging eurozone countries to reduce budget deficits and embrace structural reform.
Central bankers have views and – perhaps unsurprisingly – they tend to be quite conservative ones. As the US economist Thomas Palley notes in a recent paper, central bank independence is a product of the neoliberal Chicago school of economics and aims to advance neoliberal interests. More specifically, workers like high employment because in those circumstances it is easier to bid up pay. Employers prefer higher unemployment because it keeps wages down and profits up. Central banks side with capital over labour because they accept the neoliberal idea that there is a point – the natural rate of unemployment – beyond which stimulating the economy merely leads to higher inflation. They are, Palley says, institutions “favoured by capital to guard against the danger that a democracy may choose economic policies capital dislikes”.
Until now, monetary policy has been deemed too important to be left to politicians. When the next crisis arrives it will become too political an issue to be left to unelected technocrats. If that crisis is to be tackled effectively, the age of independent central banks will have to come to an end.
The two liberalisms - one offering genuine human freedom, the other entrapping humans in ruthless market mechanisms - are fundamentally in conflict writes Pankaj Misra in The Print
Russian President Vladimir Putin’s assertion last week that Western liberalism was obsolete provoked some strident rebuttals. A contemptuous silence might have been preferable, saving us the embarrassment of Boris Johnson invoking “our values,” or European Council President Donald Tusk claiming, against overwhelming evidence, that it was authoritarianism that was obsolete.
Even the Financial Times, to which Putin confided his views, was reduced to childishly asserting that “while America is no longer the shining city on the hill it once seemed, the world’s poor and oppressed still head overwhelmingly for the U.S. and western Europe” rather than Russia.
Such rhetoric from both sides felt like a rehash of the cold war, and with the same purpose: to conceal the failures and weaknesses of both systems.
One function of Russia’s communist tyranny in the past was to make its capitalist opponents look vastly better. Centrally planned command economies failed spectacularly, revealing that communists had no economic solution to the modern riddles of injustice and inequality, and were, furthermore, devastatingly blind to their own environmental depredations.
Wealth-creating capitalist economies, on the other hand, can hardly be said to have resolved those problems or made the world more inhabitable for future generations. Their advocates made extravagant promises of freedom, justice and prosperity after the collapse of communism, claiming that capitalism was the only viable model left standing at the End of History. Then their feckless experiments in free markets set the stage for the authoritarian movements and personalities that now dominate the news.
It should not be forgotten that the shock therapy of free markets administered to Russia during the 1990s caused widespread venality, chaos and mass suffering there, eventually boosting Putin to power. That’s why it won’t be enough to invoke, against Putin’s demagoguery, the most flattering definition of liberalism: as a guarantee of individual rights and civil liberties.
To be sure, the liberal tradition that affirms human freedom and dignity against the forces of autocracy, reactionary conservatism and social conformism is profoundly honorable, and ought to be always defended. But there is another liberalism that has been bound up since the 19th century with the fate of capitalist expansion, concerned with advancing the individual interests of the propertied and the shareholder. This is the liberalism, unconcerned with the common good, popularly denounced today as “neo-liberalism.”
In fact, the two liberalisms — one offering genuine human freedom, the other entrapping humans in impersonal and often ruthless market mechanisms — were always fundamentally in conflict. Still, they managed for a long time to coexist uneasily because the West’s expanding capitalist societies seemed capable of gradually extending social rights and economic benefits to all their citizens.
That unique capacity is today endangered by grotesque levels of oligarchic power and domestic inequality, as well as formidable challenges from economic powers such as China that the capitalist West had once dominated and exploited. In other words, modern history is no longer on the side of Western liberalism.
The devastating loss of its special status has exposed this central Western ideology to mockery from demagogues such as Putin and the Hungarian leader Viktor Orban. They’re joined by men of the hard right in the West who also zero in on liberals’ always vulnerable faith in cultural pluralism, denouncing immigrants and multiculturalism as well as sexual minorities.
In a much-circulated recent article, Sohrab Ahmari, the op-ed editor of the New York Post, complimented Donald Trump for shifting the national conversation from liberal notions of individual freedom to “order, continuity, and social cohesion.” But, as the intellectual historian Samuel Moyn put it last week, “the political system based on individual liberty and representative government doesn’t need to be celebrated or repudiated. It needs to be saved from itself” — from an obsession with “economic freedom that has undercut its own promise.”
Certainly, it won’t do to double down on shattered verities: to claim superior values, or to insist, as the Financial Times did, that “the superiority of private enterprise and free markets — at least within individual nations — in creating wealth is no longer seriously challenged.”
That seemingly last-minute qualifier, “at least within individual nations,” tries to conjure away the buffeting of national economies by opaque global forces. And it betrays the uncomfortable truth that, these days, even liberalism’s self-appointed defenders are not wholly convinced of their cause.
Perhaps, instead of mechanically asserting their superior status, they should examine their reflexively fanatical faith in market mechanisms. They should trace how the once-expansive liberal notion of individual freedom narrowed into a rigid principle of individual entrepreneurship and private wealth-creation. Indeed, such self-criticism has always defined the finest kind of liberalism. It is the best way today to renew an important tradition and convincingly defend it from its critics.
Mahir Ali in The Dawn
LAST Sunday, many of the participants in the latest protest in London against the Labour Party’s allegedly inadequate response to anti-Semitism are likely to have been buoyed by a report in The Observer about a £50 million project to launch a centrist third force in British politics.
There is no guarantee that such a party will indeed take shape before the next general election, but it does not require much imagination to categorise it as part of the effort to ensure that Jeremy Corbyn never becomes prime minister. Whether many members of the Parliamentary Labour Party would be dumb enough to latch on to such an enterprise, given the dire fate of the last concerted effort to ‘break the mould’ back in the early 1980s, is an open question.
The majority of Labour parliamentarians were discombobulated by a dedicated socialist’s emergence as party leader three years ago, and moves to unseat him were launched almost immediately. The idea of a dedicated socialist leading a party that had once prided itself on its socialism, but had in the 1990s lapsed into a kind of neoliberalism that made it virtually indistinguishable from the Conservative Party, was anathema to the Blairite diehards.
But Corbyn enjoyed mass support among the party membership, and an attempt to replace him led to his re-election with an even bigger majority. Never mind, the malcontents thought, the next general election will render his leadership untenable after Labour is decimated. But when Theresa May made the mistake of calling an early election last year, the opposition made substantial gains while the Tories lost their majority.
Corbyn’s critics were temporarily silenced. A few stepped back, and some opponents even recanted their scepticism about his leadership. The ideological divide remained unbridged, though, and the tendency to latch on to smear campaigns undiminished.
Not long ago, they were heartened by news reports suggesting Corbyn might have been a communist spy, based on the testimony of a delusional former Czechoslovak diplomat. That mud didn’t stick. Corbyn’s considered response to the poisoning of a Russian ex-spy and his daughter in Salisbury offered another opportunity to malign him, just because the Labour leader sensibly suggested that solid evidence of Russian state complicity in the outrage should precede any action against Moscow.
Reverting to the anti-Semitism trope emerged as the next best option for destabilisation, the latest hook being Corbyn’s sympathy eight years ago in a Facebook post for an artist deploring the erasure of an anti-capitalist mural he had pained on a wall. Corbyn has apologised for failing to notice the mural’s anti-Semitic implications at first glance — namely a couple of stereotypical Jewish faces among the bankers sitting around a table that is crushing the rest of humanity.
It has been claimed the depiction echoes Nazi propaganda, although the critics generally fail to mention that in Germany back then it was common for ‘Jewish financiers’ to be condemned specifically for bankrolling Russia’s Bolshevik revolution, many of whose stalwarts were in turn targeted by their foes on the basis of their Jewish origins.
There is a long history of virulent anti-Semitism across Europe, which contributed to the Holocaust but also survived the Second World War. Its European manifestations today are found mainly on the Continent rather than in Britain, largely on the far right of politics. They are dwarfed, though, by growing anti-Muslim prejudice.
It is perfectly appropriate that even the most passionate critics of the militant Islamic State group or Saudi Arabia, including Corbyn, are seldom branded as Islamophobes. By the same token, it is utterly ridiculous for all critics of Israel, including Jews, to be dubbed anti-Semitic. It is certainly wrong to conflate Jewishness with Israel or with Zionism. But this is a grave error that is routinely compounded by all too many Zionists and most representatives of the Israeli state.
It was in evidence last week when Corbyn was berated for attending a Passover Seder organised by a non-Zionist Jewish collective called Jewdas in his London constituency. To an extent, this particular smear backfired on the Jewish Board of Deputies and other critics. On the other hand, a poll published last Sunday found that half of the British electorate believes — contrary to the evidence, but in keeping with the malign diatribes echoed throughout the mainstream media, from The Guardian to the Daily Mail — that Labour has a bigger anti-Semitism problem than other parties, and that 34 per cent of voters believe Corbyn is among those who hold anti-Semitic views, notwithstanding his unrelenting opposition to all forms of racism.
The latest campaign may have been motivated in part by the May 3 local elections, and its efficacy should be visible in a couple of weeks. It is reassuring, though, that Corbyn has not been cowed into tempering his criticism of the latest atrocities in Gaza.
Dani Rodrik in The Boston Globe
As even its harshest critics concede, neoliberalism is hard to pin down. In broad terms, it denotes a preference for markets over government, economic incentives over cultural norms, and private entrepreneurship over collective action. It has been used to describe a wide range of phenomena – from Augusto Pinochet to Margaret Thatcher and Ronald Reagan, from the Clinton Democrats and the UK’s New Labour to the economic opening in China and the reform of the welfare state in Sweden.
The term is used as a catchall for anything that smacks of deregulation, liberalisation, privatisation or fiscal austerity. Today it is routinely reviled as a shorthand for the ideas and practices that have produced growing economic insecurity and inequality, led to the loss of our political values and ideals, and even precipitated our current populist backlash.
We live in the age of neoliberalism, apparently. But who are neoliberalism’s adherents and disseminators – the neoliberals themselves? Oddly, you have to go back a long time to find anyone explicitly embracing neoliberalism. In 1982, Charles Peters, the longtime editor of the political magazine Washington Monthly, published an essay titled A Neo-Liberal’s Manifesto. It makes for interesting reading 35 years later, since the neoliberalism it describes bears little resemblance to today’s target of derision. The politicians Peters names as exemplifying the movement are not the likes of Thatcher and Reagan, but rather liberals – in the US sense of the word – who have become disillusioned with unions and big government and dropped their prejudices against markets and the military.
The use of the term “neoliberal” exploded in the 1990s, when it became closely associated with two developments, neither of which Peters’s article had mentioned. One of these was financial deregulation, which would culminate in the 2008 financial crash and in the still-lingering euro debacle. The second was economic globalisation, which accelerated thanks to free flows of finance and to a new, more ambitious type of trade agreement. Financialisation and globalisation have become the most overt manifestations of neoliberalism in today’s world.
That neoliberalism is a slippery, shifting concept, with no explicit lobby of defenders, does not mean that it is irrelevant or unreal. Who can deny that the world has experienced a decisive shift toward markets from the 1980s on? Or that centre-left politicians – Democrats in the US, socialists and social democrats in Europe – enthusiastically adopted some of the central creeds of Thatcherism and Reaganism, such as deregulation, privatisation, financial liberalisation and individual enterprise? Much of our contemporary policy discussion remains infused with principles supposedly grounded in the concept of homo economicus, the perfectly rational human being, found in many economic theories, who always pursues his own self-interest.
But the looseness of the term neoliberalism also means that criticism of it often misses the mark. There is nothing wrong with markets, private entrepreneurship or incentives – when deployed appropriately. Their creative use lies behind the most significant economic achievements of our time. As we heap scorn on neoliberalism, we risk throwing out some of neoliberalism’s useful ideas.
The real trouble is that mainstream economics shades too easily into ideology, constraining the choices that we appear to have and providing cookie-cutter solutions. A proper understanding of the economics that lie behind neoliberalism would allow us to identify – and to reject – ideology when it masquerades as economic science. Most importantly, it would help us to develop the institutional imagination we badly need to redesign capitalism for the 21st century.
Neoliberalism is typically understood as being based on key tenets of mainstream economic science. To see those tenets without the ideology, consider this thought experiment. A well-known and highly regarded economist lands in a country he has never visited and knows nothing about. He is brought to a meeting with the country’s leading policymakers. “Our country is in trouble,” they tell him. “The economy is stagnant, investment is low, and there is no growth in sight.” They turn to him expectantly: “Please tell us what we should do to make our economy grow.”
The economist pleads ignorance and explains that he knows too little about the country to make any recommendations. He would need to study the history of the economy, to analyse the statistics, and to travel around the country before he could say anything.
Tony Blair and Bill Clinton: centre-left politicians who enthusiastically adopted some of the central creeds of Thatcherism and Reaganism. Photograph: Reuters
But his hosts are insistent. “We understand your reticence, and we wish you had the time for all that,” they tell him. “But isn’t economics a science, and aren’t you one of its most distinguished practitioners? Even though you do not know much about our economy, surely there are some general theories and prescriptions you can share with us to guide our economic policies and reforms.”
The economist is now in a bind. He does not want to emulate those economic gurus he has long criticised for peddling their favourite policy advice. But he feels challenged by the question. Are there universal truths in economics? Can he say anything valid or useful?
So he begins. The efficiency with which an economy’s resources are allocated is a critical determinant of the economy’s performance, he says. Efficiency, in turn, requires aligning the incentives of households and businesses with social costs and benefits. The incentives faced by entrepreneurs, investors and producers are particularly important when it comes to economic growth. Growth needs a system of property rights and contract enforcement that will ensure those who invest can retain the returns on their investments. And the economy must be open to ideas and innovations from the rest of the world.
But economies can be derailed by macroeconomic instability, he goes on. Governments must therefore pursue a sound monetary policy, which means restricting the growth of liquidity to the increase in nominal money demand at reasonable inflation. They must ensure fiscal sustainability, so that the increase in public debt does not outpace national income. And they must carry out prudential regulation of banks and other financial institutions to prevent the financial system from taking excessive risk.
Now he is warming to his task. Economics is not just about efficiency and growth, he adds. Economic principles also carry over to equity and social policy. Economics has little to say about how much redistribution a society should seek. But it does tell us that the tax base should be as broad as possible, and that social programmes should be designed in a way that does not encourage workers to drop out of the labour market.
By the time the economist stops, it appears as if he has laid out a fully fledged neoliberal agenda. A critic in the audience will have heard all the code words: efficiency, incentives, property rights, sound money, fiscal prudence. And yet the universal principles that the economist describes are in fact quite open-ended. They presume a capitalist economy – one in which investment decisions are made by private individuals and firms – but not much beyond that. They allow for – indeed, they require – a surprising variety of institutional arrangements.
So has the economist just delivered a neoliberal screed? We would be mistaken to think so, and our mistake would consist of associating each abstract term – incentives, property rights, sound money – with a particular institutional counterpart. And therein lies the central conceit, and the fatal flaw, of neoliberalism: the belief that first-order economic principles map on to a unique set of policies, approximated by a Thatcher/Reagan-style agenda.
Consider property rights. They matter insofar as they allocate returns on investments. An optimal system would distribute property rights to those who would make the best use of an asset, and afford protection against those most likely to expropriate the returns. Property rights are good when they protect innovators from free riders, but they are bad when they protect them from competition. Depending on the context, a legal regime that provides the appropriate incentives can look quite different from the standard US-style regime of private property rights.
This may seem like a semantic point with little practical import; but China’s phenomenal economic success is largely due to its orthodoxy-defying institutional tinkering. China turned to markets, but did not copy western practices in property rights. Its reforms produced market-based incentives through a series of unusual institutional arrangements that were better adapted to the local context. Rather than move directly from state to private ownership, for example, which would have been stymied by the weakness of the prevailing legal structures, the country relied on mixed forms of ownership that provided more effective property rights for entrepreneurs in practice. Township and Village Enterprises (TVEs), which spearheaded Chinese economic growth during the 1980s, were collectives owned and controlled by local governments. Even though TVEs were publicly owned, entrepreneurs received the protection they needed against expropriation. Local governments had a direct stake in the profits of the firms, and hence did not want to kill the goose that lays the golden eggs.
China relied on a range of such innovations, each delivering the economist’s higher-order economic principles in unfamiliar institutional arrangements. For instance, it shielded its large state sector from global competition, establishing special economic zones where foreign firms could operate with different rules than in the rest of the economy. In view of such departures from orthodox blueprints, describing China’s economic reforms as neoliberal – as critics are inclined to do – distorts more than it reveals. If we are to call this neoliberalism, we must surely look more kindly on the ideas behind the most dramatic poverty reduction in history.
One might protest that China’s institutional innovations were purely transitional. Perhaps it will have to converge on western-style institutions to sustain its economic progress. But this common line of thinking overlooks the diversity of capitalist arrangements that still prevails among advanced economies, despite the considerable homogenisation of our policy discourse.
What, after all, are western institutions? The size of the public sector in OECD countries varies, from a third of the economy in Korea to nearly 60% in Finland. In Iceland, 86% of workers are members of a trade union; the comparable number in Switzerland is just 16%. In the US, firms can fire workers almost at will; French labour laws have historically required employers to jump through many hoops first. Stock markets have grown to a total value of nearly one-and-a-half times GDP in the US; in Germany, they are only a third as large, equivalent to just 50% of GDP.
‘China turned to markets, but did not copy western practices ... ’ Photograph: AFP/Getty
The idea that any one of these models of taxation, labour relations or financial organisation is inherently superior to the others is belied by the varying economic fortunes that each of these economies have experienced over recent decades. The US has gone through successive periods of angst in which its economic institutions were judged inferior to those in Germany, Japan, China, and now possibly Germany again. Certainly, comparable levels of wealth and productivity can be produced under very different models of capitalism. We might even go a step further: today’s prevailing models probably come nowhere near exhausting the range of what might be possible, and desirable, in the future.
The visiting economist in our thought experiment knows all this, and recognises that the principles he has enunciated need to be filled in with institutional detail before they become operational. Property rights? Yes, but how? Sound money? Of course, but how? It would perhaps be easier to criticise his list of principles for being vacuous than to denounce it as a neoliberal screed.
Still, these principles are not entirely content-free. China, and indeed all countries that managed to develop rapidly, demonstrate the utility of those principles once they are properly adapted to local context. Conversely, too many economies have been driven to ruin courtesy of political leaders who chose to violate them. We need look no further than Latin American populists or eastern European communist regimes to appreciate the practical significance of sound money, fiscal sustainability and private incentives.
Of course, economics goes beyond a list of abstract, largely common-sense principles. Much of the work of economists consists of developing stylised models of how economies work and then confronting those models with evidence. Economists tend to think of what they do as progressively refining their understanding of the world: their models are supposed to get better and better as they are tested and revised over time. But progress in economics happens differently.
Economists study a social reality that is unlike the physical universe. It is completely manmade, highly malleable and operates according to different rules across time and space. Economics advances not by settling on the right model or theory to answer such questions, but by improving our understanding of the diversity of causal relationships. Neoliberalism and its customary remedies – always more markets, always less government – are in fact a perversion of mainstream economics. Good economists know that the correct answer to any question in economics is: it depends.
Does an increase in the minimum wage depress employment? Yes, if the labour market is really competitive and employers have no control over the wage they must pay to attract workers; but not necessarily otherwise. Does trade liberalisation increase economic growth? Yes, if it increases the profitability of industries where the bulk of investment and innovation takes place; but not otherwise. Does more government spending increase employment? Yes, if there is slack in the economy and wages do not rise; but not otherwise. Does monopoly harm innovation? Yes and no, depending on a whole host of market circumstances.
‘Today [neoliberalism] is routinely reviled as a shorthand for the ideas that have produced growing economic inequality and precipitated our current populist backlash’ … Trump signing an order to take the US out of the TPP trade pact. Photograph: AFP/Getty
In economics, new models rarely supplant older models. The basic competitive-markets model dating back to Adam Smith has been modified over time by the inclusion, in rough historical order, of monopoly, externalities, scale economies, incomplete and asymmetric information, irrational behaviour and many other real-world features. But the older models remain as useful as ever. Understanding how real markets operate necessitates using different lenses at different times.
Perhaps maps offer the best analogy. Just like economic models, maps are highly stylised representations of reality. They are useful precisely because they abstract from many real-world details that would get in the way. But abstraction also implies that we need a different map depending on the nature of our journey. If we are travelling by bike, we need a map of bike trails. If we are to go on foot, we need a map of footpaths. If a new subway is constructed, we will need a subway map – but we wouldn’t throw out the older maps.
Economists tend to be very good at making maps, but not good enough at choosing the one most suited to the task at hand. When confronted with policy questions of the type our visiting economist faces, too many of them resort to “benchmark” models that favour the laissez-faire approach. Kneejerk solutions and hubris replace the richness and humility of the discussion in the seminar room. John Maynard Keynes once defined economics as the “science of thinking in terms of models, joined to the art of choosing models which are relevant”. Economists typically have trouble with the “art” part.
This, too, can be illustrated with a parable. A journalist calls an economics professor for his view on whether free trade is a good idea. The professor responds enthusiastically in the affirmative. The journalist then goes undercover as a student in the professor’s advanced graduate seminar on international trade. He poses the same question: is free trade good? This time the professor is stymied. “What do you mean by ‘good’?” he responds. “And good for whom?” The professor then launches into an extensive exegesis that will ultimately culminate in a heavily hedged statement: “So if the long list of conditions I have just described are satisfied, and assuming we can tax the beneficiaries to compensate the losers, freer trade has the potential to increase everyone’s wellbeing.” If he is in an expansive mood, the professor might add that the effect of free trade on an economy’s longterm growth rate is not clear either, and would depend on an altogether different set of requirements.
This professor is rather different from the one the journalist encountered previously. On the record, he exudes self-confidence, not reticence, about the appropriate policy. There is one and only one model, at least as far as the public conversation is concerned, and there is a single correct answer, regardless of context. Strangely, the professor deems the knowledge that he imparts to his advanced students to be inappropriate (or dangerous) for the general public. Why?
The roots of such behaviour lie deep in the culture of the economics profession. But one important motive is the zeal to display the profession’s crown jewels – market efficiency, the invisible hand, comparative advantage – in untarnished form, and to shield them from attack by self-interested barbarians, namely the protectionists. Unfortunately, these economists typically ignore the barbarians on the other side of the issue – financiers and multinational corporations whose motives are no purer and who are all too ready to hijack these ideas for their own benefit.
As a result, economists’ contributions to public debate are often biased in one direction, in favour of more trade, more finance and less government. That is why economists have developed a reputation as cheerleaders for neoliberalism, even if mainstream economics is very far from a paean to laissez-faire. The economists who let their enthusiasm for free markets run wild are in fact not being true to their own discipline.
How then should we think about globalisation in order to liberate it from the grip of neoliberal practices? We must begin by understanding the positive potential of global markets. Access to world markets in goods, technologies and capital has played an important role in virtually all of the economic miracles of our time. China is the most recent and powerful reminder of this historical truth, but it is not the only case. Before China, similar miracles were performed by South Korea, Taiwan, Japan and a few non-Asian countries such as Mauritius. All of these countries embraced globalisation rather than turn their backs on it, and they benefited handsomely.
Defenders of the existing economic order will quickly point to these examples when globalisation comes into question. What they will fail to say is that almost all of these countries joined the world economy by violating neoliberal strictures. South Korea and Taiwan, for instance, heavily subsidised their exporters, the former through the financial system and the latter through tax incentives. All of them eventually removed most of their import restrictions, long after economic growth had taken off.
But none, with the sole exception of Chile in the 1980s under Pinochet, followed the neoliberal recommendation of a rapid opening-up to imports. Chile’s neoliberal experiment eventually produced the worst economic crisis in all of Latin America. While the details differ across countries, in all cases governments played an active role in restructuring the economy and buffering it against a volatile external environment. Industrial policies, restrictions on capital flows and currency controls – all prohibited in the neoliberal playbook – were rampant.
Protest against Nafta in Mexico City in 2008: since the reforms of the mid-90s, the country’s economy has underperformed. Photograph: EPA
By contrast, countries that stuck closest to the neoliberal model of globalisation were sorely disappointed. Mexico provides a particularly sad example. Following a series of macroeconomic crises in the mid-1990s, Mexico embraced macroeconomic orthodoxy, extensively liberalised its economy, freed up the financial system, sharply reduced import restrictions and signed the North American Free Trade Agreement (Nafta). These policies did produce macroeconomic stability and a significant rise in foreign trade and internal investment. But where it counts – in overall productivity and economic growth – the experiment failed. Since undertaking the reforms, overall productivity in Mexico has stagnated, and the economy has underperformed even by the undemanding standards of Latin America.
These outcomes are not a surprise from the perspective of sound economics. They are yet another manifestation of the need for economic policies to be attuned to the failures to which markets are prone, and to be tailored to the specific circumstances of each country. No single blueprint fits all.
As Peters’s 1982 manifesto attests, the meaning of neoliberalism has changed considerably over time as the label has acquired harder-line connotations with respect to deregulation, financialisation and globalisation. But there is one thread that connects all versions of neoliberalism, and that is the emphasis on economic growth. Peters wrote in 1982 that the emphasis was warranted because growth is essential to all our social and political ends – community, democracy, prosperity. Entrepreneurship, private investment and removing obstacles that stand in the way (such as excessive regulation) were all instruments for achieving economic growth. If a similar neoliberal manifesto were penned today, it would no doubt make the same point.
Critics often point out that this emphasis on economics debases and sacrifices other important values such as equality, social inclusion, democratic deliberation and justice. Those political and social objectives obviously matter enormously, and in some contexts they matter the most. They cannot always, or even often, be achieved by means of technocratic economic policies; politics must play a central role.
Still, neoliberals are not wrong when they argue that our most cherished ideals are more likely to be attained when our economy is vibrant, strong and growing. Where they are wrong is in believing that there is a unique and universal recipe for improving economic performance, to which they have access. The fatal flaw of neoliberalism is that it does not even get the economics right. It must be rejected on its own terms for the simple reason that it is bad economics.